Congress Ends Shutdown, but Stage is Set for Next Round

(Bloomberg) After the partisan passions and heated rhetoric, the disruptions of a government shutdown and displays of dysfunction, Congress did what it could have done weeks ago: voted to fund the government and lift the debt limit.

The passage last night by wide margins—an 81-18 vote in the Democratic-led Senate, followed by a 285-144 vote in the Republican-controlled House—allows the U.S. to avoid default and ends the shutdown that began Oct. 1 and has taken $24 billion out of the economy.

President Barack Obama signed the bill just after midnight, according to a White House statement. The measure puts government workers back on the job as soon as today and permits the U.S. to continue paying its debts, benefits and salaries.

“We’ll begin reopening our government immediately and we can begin to lift this cloud of uncertainty and unease from our businesses and from the American people,” Obama said last night at the White House after the Senate voted.

Lawmakers didn’t show they’re any closer to resolving the underlying issues of spending priorities and deficit-reduction measures, particularly in the House where a shrinking political middle makes compromise elusive as the latest events show.

The focus now shifts to a new series of deadlines—the first for budget negotiations with a Dec. 13 target—that set up more rounds of political combat over taxes and spending on programs including Social Security and Medicare. The deal funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7.

Health Law
Tea Party-allied Republicans, such as Texas Senator Ted Cruz, said they would find ways to keep up the fight against Obama’s health care law.

The votes conclude a four-week fiscal standoff that began with Republicans demanding defunding the Patient Protection and Affordable Care Act, and objecting to raising the debt limit and funding the government without policy conditions.

They achieved almost none of those goals. Obama and the uncharacteristically unified congressional Democrats stared down Republicans, particularly those allied with the Tea Party movement, who had sought to use the shutdown and debt ceiling as leverage even as more experienced lawmakers realized they didn’t have the votes.

Judd Gregg, a former New Hampshire Republican senator and veteran of Obama’s first-term fiscal commission, said members of his party took on the wrong fight when they made it about Obama’s health care law. Gregg is now chief executive officer of the Securities Industry and Financial Markets Association.

‘Dysfunctional Government’
“It was an exercise in dysfunctional government,” Gregg said in an interview. “It was a loser position from the beginning because there was no way in divided government you’re ever going to repeal Obamacare. We should have been debating as Republicans how we fix our fiscal house.”

The practice of governing by crisis has become so established in Washington that financial markets weren’t disturbed by the impasse, correctly anticipating a deal would come at the last moment as happened in a similar standoff two years ago.

U.S. stocks rallied yesterday on news of the agreement, sending the Standard & Poor’s 500 Index toward a record. The benchmark index rose 1.4 percent to 1,721.54 yesterday in New York after sliding 0.7 percent when the deal looked uncertain the previous day. The Dow Jones Industrial Average rose 205.82 points, or 1.4 percent, to 15,373.83.

Shutdown’s Toll
The Stoxx Europe 600 Index fell 0.4 percent to 314.42 at 8:44 a.m. in London. Standard & Poor’s 500 Index futures slipped 0.2 percent, while the MSCI Asia Pacific Index added 0.9 percent.

In China, Dagong Global Credit Rating Co. downgraded its local and foreign-currency assessments of the U.S. to A- from A. Dagong is based in Beijing and one of the nation’s four biggest credit-rating companies. China has the largest foreign holdings of U.S. Treasuries, and the latest monthly U.S. government figures showed it increased its total in July.

Federal agencies were instructed to begin opening offices today in a “prompt and orderly manner” and furloughed employees were allowed to return to work, according to a memo from White House budget office Director Sylvia Burwell.

“We will work closely with departments and agencies to make the transition back to full operating status as smooth as possible,” Burwell said in the memo released early today.

Still, the 16-day shutdown hasn’t been cost-free. It has taken a toll on workers who lost paychecks—furloughed employees will receive back pay—and on the U.S. economy. Standard & Poor’s said yesterday the shutdown has shaved at least 0.6 percent from fourth-quarter 2013 gross domestic product growth, or taken $24 billion out of the economy.

Confidence ‘Shaken’
“Millions suffered,” said Senator Charles Schumer, a New York Democrat. “Millions didn’t get paychecks. The economy was dragged down and confidence and faith in United States credit and in the United States around the world was shaken.”

Macroeconomic Advisers LLC said in a report prepared this week for the Peter G. Peterson Foundation that the budget fights in Washington have lowered U.S. economic growth by about 0.3 percentage points a year since 2009. The fiscal standoff added more than a half-point to this year’s unemployment rate, or the equivalent of about 900,000 jobs, the report said.

It may be weeks or even months before the government resumes issuing loans, payments and contracts at a normal pace. The budget impasse also raised doubts that will linger about U.S. reliability among major creditor nations such as China and frustrated many Americans.

Provide ‘Stability’
“The compromise we reached will provide our economy with the stability it desperately needs,” said Senate Majority Leader Harry Reid. The Nevada Democrat negotiated the agreement with his Republican counterpart, Mitch McConnell of Kentucky, after House Speaker John Boehner, an Ohio Republican, was unable to come to terms within his caucus.

“It would appear as though we’re kicking the can down the road one more time,” Representative Jim Bridenstine, an Oklahoma Republican, said in an interview.

The U.S. Chamber of Commerce, the country’s largest business group, supported the agreement, as did the Business Roundtable, an association of large-company chief executives. Several small-government groups, including the Club for Growth and Heritage Action for America, urged lawmakers to vote against the accord.

The votes were held just hours before the nation was set to exhaust its borrowing authority, which the Obama administration had warned would have dire consequences within days given global reliance on U.S. Treasuries.

Credit Rating
The Senate accord was unveiled a day after Fitch Ratings put the U.S. AAA credit grade on ratings watch negative, citing the government’s inability to raise the debt ceiling in a timely manner. After a 2011 debt-ceiling fight, Standard & Poor’s downgraded the United States’ credit rating to AA+ from AAA, criticizing the nation’s political process and lawmakers for failing to cut spending or raise revenue enough to reduce the budget deficit.

Boehner, acceding to the demands of the White House and Democratic-led Senate, said in a statement that blocking the bipartisan deal would only create a “risk of default” on U.S. debt, which he previously said would not happen.

Republicans say Boehner’s willingness to heed their concerns will leave his position as speaker unchallenged in the year ahead.

“We fought the good fight,” Boehner said yesterday on WLW, a radio station in his home state of Ohio. “We just didn’t win.”

At the end of a weeks-long stalemate, Obama managed to stave off a frontal assault on his health care law by House Republicans and forced them to surrender on raising the U.S. debt ceiling without conditions.

‘Next Battle’
“It’s clearly a win for the president,” said Patrick Griffin, a congressional lobbyist in the administration of President Bill Clinton, who faced two government shutdowns and a combative Republican Congress. “Whether it’s a battle win or a war win for the president we don’t know. The next battle will come soon.”

The reaction of independents may determine whether Republicans have a chance to make inroads in the Senate in the 2014 election. Republicans need a net gain of six seats to win the majority in the 100-member chamber. Democrats are defending seven seats in states Republican Mitt Romney won in the 2012 presidential election.

“For now, the default debate, coupled with the shutdown of the government, has been to the detriment of Senate Republicans,” said Jennifer Duffy, senior editor of the Washington-based Cook Political Report, which tracks congressional contests. The Republicans’ “path to the majority was narrow before the shutdown and has gotten considerably more narrow since.”

Tea Party
While public opinion polling shows Americans disproportionately blame Republicans for their handling of the debt fight, members have more than a year before they have to face voters again in midterm elections.

The Tea Party is less popular than ever, with many Republicans viewing the movement negatively, according to a poll released yesterday by the Pew Research Center for the People and the Press in Washington. Overall, 49 percent of the public has an unfavorable opinion of the Tea Party, up from 45 percent in June, while 30 have a favorable opinion, down from 37 percent two months ago.

Those numbers may be misleading, as the Tea Party movement is most effective as a political force in Republican-dominated Congressional districts where incumbents look for a primary challenge.

—With assistance from Michael Tackett, Brian Wingfield, Heidi Przybyla, Richard Rubin, Margaret Talev, Mike Dorning, Mark Silva and Julie Bykowicz in Washington and Richard Frost in Hong Kong. Editors: Jodi Schneider, Michael Shepard